It’s been a troubled decade for federal dairy policy. Federal officials designed the main safety net, adjusted, re-calibrated, renamed, and rapidly put it back in place, all while dairy farms across the country struggled to continue milking.
The path to the modern system, the Dairy Margin Coverage program, has been a rocky one, leaving some skeptical of its staying power and of its ability to stop the rapid rate of dairy bankruptcies.
How we got to DMC
The Margin Protection Program started it. The contentious 2014 Farm Bill brought the Margin Protection Program into existence. In fact, 2014 was a revolutionary year for federal dairy policy, says Carl Zulauf, professor emeritus at Ohio State University and farm policy expert.
The Margin Protection Program aimed to do something novel — compensate farmers for lost margin, calculated by the difference between aggregated national prices for milk and feed. But, despite stress in the dairy market, farmers paid into the program and received few, if any, payouts. Farmers struggled, and lawmakers heard about it.
Officials would spend much of the following four years working to fix it. So, the 2018 Farm Bill replaced the MPP with the DMC, lowering the prices farmers pay in premiums and increasing coverage levels to provide greater flexibility.
Lawmakers touted its benefits and pressed U.S. Department of Agriculture to ensure that farmers knew the details. And the pressure was effective. More than 80% of all US dairy farms signed up for some amount of coverage under the program in 2019, which has paid producers more than $300 million in premiums for the year.
But the only major difference between MPP and DMC, says Mark Stephenson, is the cost and coverage levels, not the basic concept. Stephenson is the director of dairy policy analysis at the University of Wisconsin-Madison’s College of Agricultural and Life Sciences.
“I think the fundamentals of the program make sense,” Stephenson said. Essentially, the fact that the program didn’t make payments didn’t mean it was flawed.
“The question is: Is it a reasonable barometer?” he said, “It has to move when the dairy situation is changing.” In the previous iteration of the program, Stephenson said, the premiums were too high and the coverage levels were too low, which resulted in few if any payouts despite stress in the dairy markets. The new version changed the numbers, but the fundamental idea is the same.
Does DMC work?
The bigger question for dairy farmers isn’t whether the program works in theory, but whether it will be able to halt the national trend of dairy bankruptcies, a trend with an epicenter in Wisconsin’s dairy land, where an average of two dairies are going out of business every day.
“It’s working much better than its predecessor.” Stephenson said, “It’s paid some real money to dairy farmers this year.”
And the USDA has worked hard to get farmers in the door. The program was put in place in a matter of weeks, and producers were given an extended deadline for 2019 and even allowed to sign up for the program retroactively. But despite sizable and speedy payouts, Stephenson says, the program isn’t a cure-all.
“It’s not enough money to keep people who are really in trouble in business.”
He also says the effectiveness of the program depends on how it’s used. It works as a risk management tool, especially when farmers participate regularly, but if producers are going to try and out-guess the market, the outcomes will be poor.
Others, both in and outside the dairy industry, say it’s simply too soon to tell whether the program will be a success.
“To be candid, we don’t have the data to do the analysis,” Zulauf said. He won’t plan to draw conclusions about the program before late 2020 or 2021, particularly if the dairy sector remains under stress.
Whether the program provides any particular protection to small farms is a harder question.
Heather Weeks, a senior loan officer at AgChoice Farm Credit, says the program’s premium discount on the first 5 million pounds of milk is definitely a benefit for smaller operators, but the increased flexibility in the program allows larger farms more access as well.
But Zulauf says the program essentially works the same, regardless of an operation’s size. If lawmakers were focused on protecting small farmers or reducing consolidation, he says, payment caps on the program would have done more.
Stephenson agrees that the DMC, as written, probably won’t alter the major trends in the industry.
“It’s not going to stop the closure of small farms,” he said. Though it might slow the trend of farm closures, it does nothing to change the prevalence of technology and other advancements that give the advantage to bigger operations.
“The Dairy Margin Coverage program is a real safety net that cushions against financial blows,” Alan Bjerga, senior vice president for communications at the National Milk Producers Federation, said in a statement. “Does that mean DMC will end decades-long trends toward consolidation? That’s not likely, given broader economic forces.”
Whether a revolutionary change in the program is likely in the 2023 Farm Bill is an open question. Some, including the National Farmers Union, are pressing for a radical shift to head off the decline of small dairies. They’re calling for supply management, a strategy that has been tried in various forms in the past, a reality which Zulauf says makes it less likely to happen again. But more critically, he doesn’t get the sense that Congress has the stomach for major change.
“I don’t hear a lot of discussion that says we want to try a new approach.”
The bottom line
For farmers trying to figure out whether to sign up for DMC or skip it, Weeks says that the best advice she can offer in the face of the sector’s uncertainty is to know your operation’s cost of production.
Without it, she says, producers are shooting in the dark when making decisions about risk and coverage levels.
